Thursday, May 29, 2014

This morning, the California Supreme Court upheld a Court of Appeal decision reversing a multi-million dollar plaintiffs' verdict in a wage/hour class action against US Bank, in Duran v. US Bank. On March 4, 2014, the Court heard oral argument, which I discussed in this blog in detail here, including a background on the case and what was at stake. In a 51-page majority opinion by Justice Corrigan, with a lengthy concurrence by Justice Liu, the Court detailed how trial courts hearing would-be class claims must determine whether the claims are manageable on a class-wide basis.

Duran's Key Holdings

Though the Duran decision is not an outright victory for workers - or for the plaintiffs in that case - the decision also does not foreclose wage/hour class actions, and most significantly, recognizes that "statistical sampling may provide an appropriate means of proving liability and damages in some wage and hour class actions." Slip Op. at 2. Because the reason for a class action inthis context is to create a more efficient means of proving a commonly held wage claim, class actions would not survive without the possibility of using common proof of liability and damages. If each person had to prove his or her own case entirely separately, there would be no reason for a class action. Duran, while remanding for a new trial, did not kill the plaintiffs' class claims in that case, as had the Court of Appeal, and the plaintiffs may yet prove class-wide liability, following the decision's guidance, and particularly that of the concurrence.

The Supreme Court stopped short of holding that a defendant has a due process right to litigate an affirmative defense as to each individual class member. Slip Op. at 35. However, if "trial proceeds with a statistical model of proof, a defendant accused of misclassification [as in the Duran case] must be given a chance to impeach that model or otherwise show that its liability is reduced because some plaintiffs were properly classified as exempt." Id.

The issue in Duran was whether a group of employees, Business Banking Officers (BBOs), were improperly classified as exempt from overtime based upon the notion that they were outside salespeople. Plaintiffs proved at trial that they predominantly worked inside bank branches - not outside. However, the Supreme Court criticized the trial court's refusal to allow defendant's "sworn declarations from 75 class members stating that they worked more than half their time outside the office" - which would negate any claims by these individuals. Slip Op. at 31. The trial court also refused to admit or allow experts to consider as part of their statistical sampling "live testimony from witnesses about their work outside the office as BBOs." Id. "Instead, extrapolating findings from its small sample [21 BBOs out of 260] and ignoring all evidence proffered to impeach these findings, the court found that the entire class was misclassified. The injustice of this result is manifest." Id.

As such, the trial plan in Duran, rejected by the Supreme Court, will be readily distinguishable by workers and their advocates when seeking to certify a class action and to propose a trial plan. If individuals disclaim any entitlement to unpaid wages, and defendants want to put forth such evidence limiting their liability, they must be able to do so. As the Supreme Court explained, "While representative testimony and sampling may sometimes be appropriate tools for managing individual issues in a class action, these statistical methods cannot so completely undermine a defendant's right to present relevant evidence." Slip Op. at 31-32.

Importantly, Duran also did not categorically reject common forms of class proof of liability or damages, like surveys and statistics. Slip Op. at 38. "Procedural innovation" is encouraged, but "must conform to the substantive rights of the parties." Slip Op. at 29, 38. Neither did the Supreme Court categorically reject the ability to prove misclassification on a classwide basis, where an employer has a "consistently applied policy or uniform job requirements and expectations contrary to a Labor Code exemption, or if it knowingly encouraged a uniform de facto practice inconsistent with the exemption." Slip Op. at 34-35.

Duran Reinforced Sav-On, Bell, and the Brinker Concurrence

Repeatedly in the decision, Duran reinforced Sav-On Drug Stores, Inc. v. Superior Court (2004) 34 Cal.4th 319, and Bell v. Farmers Ins. Exchange (2004) 115 Cal.App.4th 715. Sav-On and Bell have provided - and will continue to provide, along with Duran - a roadmap to all workers' advocates in how to certify a wage and hour class action and prove class claims. Notably, the Court seemed to encourage what happened in Bell - summary judgment on liability, followed by a damages trial involving sampling - as a means for adjudicating wage/hour class actions. "Once the issue of liability had been decided, both sides benefited from a fair, cost-effective approach to determining damages. By agreeing on a sampling approach, both sides could expedite resolution while preserving their competing interests in calculating damages." Slip Op. at 37 n. 34.

Similarly, Duran's repeated invocation of Justice Werdegar's concurrence in Brinker Restaurant Corp. v. Superior Court (2012) 53 Cal.4th 1004, 1054 (see, e.g., Duran slip op. at 23, 25) reaffirms that individualized liability and damages questions do not bar use of the class action mechanism or class-wide relief - but rather, that trial courts must act carefully in such situations, when fashioning a "procedurally innovative" and efficient trial plan, to ensure fairness. Slip Op. at 29; Slip Op., conc. at 2 (citing Sav-On and City of San Jose v. Superior Court (1974) 12 Cal.3d 447, 459). Before Duran, advocates on both sides were uncertain as to what weight to accord the Brinker concurrence - authored by the same justice as the majority opinion - but now, the answer is clear: a great deal of weight.

Justice Liu's Concurrence Shows the Way

Justice Liu's concurrence illuminates the path forward for employee advocates confronting unlawful misclassification of groups of employees as exempt from overtime and meal/rest period requirements. Building on Ramirez v. Yosemite Water Co. (1999) 20 Cal.4th 785, the concurrence explains that the relevant consideration in deciding on a misclassification allegation is whether the employer's realistic requirements of the job would lead to more exempt, or more non-exempt work, being performed. Slip Op., conc. at 4-5. Thus, "it is not difficult to contemplate that employees in a given job classification will often be either wholly exempt or wholly nonexempt, since a job classification often entails a common set of employer expectations or requirements for performance of the job." Slip Op., conc. at 5. Both before and after Duran, an employer cannot evade liability based solely on a seemingly exempt job description; conversely, certification of a misclassification claim will not be appropriate based solely on a seemingly non-exempt job description. "How employees actually spend their time obviously matters." Id. But, as the Supreme Court discussed in Sav-On, "[v]ariability in such hours does not necessarily prove that the employer's realistic expectations or the realistic requirements of the job were not the same for all employees in a given job classification." Id.

As Justice Liu explained, providing guidance to the trial court on remand in Duran, employer-side declarations cannot be ignored, and "must be assessed for [their] weight and credibility together with all other evidence bearing on the ultimate issue." Slip Op., conc. at 8. But "the need to manage individual issues does not foreclose the use of sampling, representative testimony, or other statistical methods to obtain relevant evidence in a class action trial on employee misclassification." Id. A valid sampling plan will "capture heterogeneity within the class" - and a defendant may "raise individual issues that challenge the results of the plan as implemented." Id. Ultimately, a court (and the court in the Duran v. US Bank case) "might find that the individualized evidence lacks credibility and that the sampling evidence is reliably probative of the employer's realistic expecations" or that "the individualized evidence, while credible, does not show variability in the class but rather provides strong, consistent evidence of the employer's realistic expectations for the job at issue." Slip Op., conc. at 9. Both individualized and aggregate forms of proof as to the realistic requirements of the job must be weighed and considered along with the job description, company policies, industry customs, and the testimony of those who set expectations for the employees in the class. Slip Op., conc. at 10.

The Take-Away from Duran

While the defense bar sought a total victory in Duran, to undermine all possibility of wage/hour class action certification and trial, they did not get it. Though some language in Duran will undoubtedly be canonized by employer advocates seeking to erect major roadblocks to class actions, the overall impact of the decision is not to dismantle class litigation. Rather, Duran stands for the proposition that all of us who litigate wage/hour class claims must work carefully to craft trial plans that will be fair to both sides - apparently, unlike what occurred in that case. When we are able to do so, proceeding with a class action will be appropriate.

Duran may prove likewise to be an aid to employees seeking class certification.

It is a good thing Duran did not kill class actions. Without the ability to prove wage/hour violations by employers using class actions, workers would have little recourse for addressing wage theft by employers. Wage practices tend not to be individualized, but tend to be pursuant to employers' policies - and employers engaged in Labor Code violations will receive a massive windfall if they can force workers to prosecute wage theft individually. Few will have the courage to do so, and even fewer will have any viable representation, because the economics of wage claims do not support individual wage actions. If 1,000 low-wage workers were cheated of $20,000 each in wages, the employer stole $20 million from workers. But attorneys will not undertake representation of each $20,000 claim for wages, when trying such a case to verdict would accrue hundreds of thousands of dollars in fees and costs. Class action is often the only means of rectifying wrongdoing by Labor Code violators- and will remain so, after today's decision in Duran.

Monday, May 12, 2014

Bryan Schwartz Law's principal recently spoke at the State Bar of California's 2014 Annual Meeting on the subject of defining a liable "employer" under California and federal wage laws. His paper presented at the conference is available here.

Mr. Schwartz's perspective, articulated in previous articles on this blog (see, e.g., this July 2013 post), is that the 2010 Martinez v. Combs decision in the California Supreme Court redefined the definition of an "employer" under California law, for overtime, minimum wage, meal/rest period, and other claims arising from the Wage Orders. The new, broader standard rejects the prior Reynolds v. Bement decision's narrower "employer" definition, articulating that an "employer" is one who 1) controls the wages, hours, or working conditions of an employee, or 2) suffers/permits him/her to work, or 3) "engaged" the employee to work, as defined by the common law. Under this broader standard, individual owners who meet any part of the three-prong test, and a variety of companies and agencies exercising control, can be "employers" liable for labor code violations.

The Private Attorneys General Act of 2004 (PAGA), Labor Code section 2698, et seq., makes any individual liable for penalties under Labor Code section 558 for violations of numerous Labor Code provisions, and for the employees' attorneys' fees and costs.

Under Business and Professions Code section 17200, employers benefiting from stealing wages may also be liable for restitution - the Code implicates any party unjustly enriched by a practice.

When the question is whether someone is an employee or independent contractor, the common law test is defined in S.G. Borello & Sons, Inc. v. Dept. of Industrial Relns., 48 Cal.3d 341 (1989) - which would only seem to affect the third prong of the Martinez v. Combs analysis - i.e. traditional agency principles. However, how Martinez v. Combs affected the definition of an "employer" where the employer is claiming the worker was an independent contractor may be answered in the Supreme Court's impending decision in Ayala v. Antelope Valley Newspapers (see our discussion of Ayalahere).